Westpac to book $173m profit hit, due to provisions, restructuring costs and writedowns

The banking giant, led by Peter King, flags a hit to its annual profit due to customer provisions, restructuring costs and writedowns.

SYDNEY, AUSTRALIA - NewsWire Photos SEPTEMBER, 22, 2023: Generic pictures of banks in Chatswood. Picture: NCA NewsWire / David Swift

Westpac has warned its 2023 annual profit will face a $173m hit after a move by the banking major to book a swath of provisions, restructuring costs and writedowns.

But the banking giant said the provisions were “significantly lower” than the $874m notable items hit that dragged down its 2022 financial year results.

In a market update on Thursday, Westpac said its $174m notable items hit was the result of the mixed outcome from asset sales coupled with costs across the business.

The notable items hit will sap Westpac’s Common Equity Tier 1 capital ratio, the measure used by banks to determine their fiscal health, by four basis points.

Westpac said it would book a $256m profit from the sale of its Advance Asset Management business, which the bank sold to Mercer Australia in April.

At the time, the sale was expected to boost its Tier 1 equity by eight basis points. The boost also includes a tax refund related to transaction and separation costs.

However, several items related to remediation, litigation, penalties, fines, and the compensation scheme of last resort sapped Westpac’s profits by $176m.

Westpac reports a $103m decline in revenue due to additional repayments to its institutional, business, and superannuation customers.

This was alongside $132m in expenses, largely made up of an increase in provisions.

Westpac booked $90m in provisions associated with its customer remediation programs, as well as a number of fines and regulatory interventions in the financial year.

The launch of the government’s Commonwealth Compensation Scheme of Last Resort, to cover the costs of financial scandals for consumers, also saw Westapc smacked with a $42 loss.

This was coupled with a $140m loss from the restructuring costs associated with a restructure across Westpac’s specialist businesses as part of an “organisational simplification” drive.

Westpac was also slugged with an $87m writedown on assets and costs relating to the bank’s campaign to slash its corporate and bank branch footprint.

The Finance Sector Union and community groups have criticised Westpac’s closures, which has seen the bank walk away from a number of its suburban and regional branch locations.

Westpac also said it would face a $26m loss from unrealised fair value gains, alongside losses on economic hedges and net ineffectiveness on qualifying hedges.

However, Westpac said there would be no impact to the bank’s profits over time as its hedges reverse.

Westpac is set to announce its full year results on November 6.

In a note to investors, Morgan Stanley analysts said they expected Westpac to announce a $2bn buyback of its shares as part of a broader round of moves by banks to buy back their shares.

Morgan Stanley equity analyst Richard Wiles said Westpac was likely to reveal a Common Equity Tier 1 ratio of 12.3 per cent at its results, with the $2bn buyback likely to only consume 43 basis points of capital.

This would allow Westpac to maintain a circa 11.75 per cent Common Equity Tier 1.

Mr Wiles said he expected Westpac to hold its dividend flat at 70c when it announces its results.

Westpac shares were poised to begin trading at $20.80.